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Post-verdict infringement royalty must take into account changed bargaining position of parties

February 28, 2008

Post by Blog Staff

In a decision Tuesday, the Federal Circuit addressed the issuance, stay, and subsequent dissolution of a permanent injunction. Further, the court addressed how damages should be allocated from infringement during a stay. The district court took the jury's reasonable royalty for pre-verdict infringement and trebled it to determine the applicable post-verdict royalty.

The Federal Circuit vacated this decision, noting that this calculation did not take "into account the fact that the sales, although authorized under the terms of the district court's stay, were nevertheless infringing and subject to an injunction." The district court's use of willfulness was not the correct inquiry "when the infringement is permitted by a court-ordered stay," but instead should have taken "into account the change in the parties' bargaining positions, and the resulting change in economic circumstances, resulting from the determination of liability."The court also remanded the case for a determination of whether the post-verdict damages should be altered in light of the Supreme Court's decision in Microsoft v. AT&T.More detail of Amado v. Microsoft Corp. after the jump.In 2003, Carlos Amado brought an infringement suit against Microsoft, alleging that Microsoft's Office Suite infringed Amado's patent. A jury found the patent valid and infringed, and awarded Amado $0.04 per infringing unit as a reasonable royalty. Amado moved for a permanent injunction, which the district court granted but immediately stayed until "seven days after the resolution or abandonment of any appeal." After issuing the stay, the district court required that Microsoft place $2.00 per infringing unit into escrow while any appeals were pending. Microsoft did so, and also filed a petition for reexamination of Amado's patent. The Federal Circuit affirmed and remanded the district court's findings, and Amado moved to have the injunction enforced 7 days after the Federal Circuit mandate issued. However, the district court denied the motion, claiming that the stay applied to any appeal, which included a then-existing petition for certiorari to the Supreme Court. After the petition for certiorari was denied, the district court again extended the stay of the permanent injunction to resolve other various motions. The district court subsequently dissolved the injunction based on the Supreme Court's decision in eBay v. MercExchange. The district court also denied a Rule 60(b)(6) motion by Microsoft based on alleged disclaimers that Amado made during the post-judgment reexamination of Amado's patent. Further, the district court awarded Amado damages of $0.12 per infringing unit made during the period of the stay, using a treble amount of the jury's finding of damages as a guideline because any infringement during the stay would have been willful infringement. Both parties appealed. On appeal, the Federal Circuit affirmed in part and reversed in part. Amado first argued that the injunction should have become effective seven days after the Federal Circuit mandate (regardless of the petition for certiorari) or at least seven days after the petition for certiorari was denied. Amado stated that the district court did not have authority to deviate from the original order after the Federal Circuit mandate. The Federal Circuit disagreed, granting broad deference to the district court's findings under an abuse of discretion standard. The court had "little difficulty [in] concluding" that a stay until seven days after "any appeal" included a petition for certiorari. Further, because of a district court's broad equitable authority and discretion, a district court had authority to extend the stay of an injunction, especially when done to preserve the status quo while related motions were being considered. Thus, the Federal Circuit affirmed the district court's findings in regard to the stay. The Federal Circuit also affirmed the district court's subsequent dissolution of the injunction. After briefing on the first appeal was complete but before oral argument, the Supreme Court decided eBay v. MercExchange. On remand from the Federal Circuit, the district court applied the traditional four-factor test from eBay to determine if the injunction was appropriate, considering (1) irreparable injury, (2) inadequacy of remedies available at law, (3) the balance of hardships, and (4) the public interest. The district court found that there was an absence of irreparable injury that the public would be disserved, and dissolved the injunction. Amado argued that Microsoft could not challenge the injunction because eBay was decided before the Federal Circuit's original mandate. After finding that the eBay decision was not an intervening decision (because Microsoft specifically declined to rely upon it during the first appeal), the Federal Circuit found that the grant of the permanent injunction was within the scope of its original mandate and thus, the mandate rule operated as a bar to the reconsideration of the initial issuance of the injunction. However, because the district court could reconsider whether the injunction was prospectively equitable, the district court was within its discretion to determine the injunction was no longer appropriate.The Federal Circuit next addressed the proper amount of damages Amado was entitled to from the infringement during the stay. Amado argued that he should receive $2.00 per infringing unit, the amount placed in escrow by Microsoft while the appeal was pending. Microsoft argued that the district court should not have trebled the jury damage findings based on willfulness, and instead awarded the same $.04 the jury awarded after trial. The court, however, found fault both with Microsoft's argument and the district court's approach. First, the court noted that at no time did any court find that $2.00 was the appropriate amount of post-verdict royalty. Instead, the district court assessed that amount as the upper limit of the potential award. The court then noted Microsoft's argument was flawed because the jury's reasonable royalty rates were for pre-verdict infringement, not post-verdict infringement. Thus, the royalty determination should take "into account the fact that the sales, although authorized under the terms of the district court's stay, were nevertheless infringing and subject to an injunction." However, the court found that the district court's use of willfulness was a faulty premise. Instead, the district court should look to these factors when assessing damages for infringement during a stay of an injunction: (1) the change in the parties' bargaining positions; (2) the resulting change in economic circumstances; and (3) the evidence and arguments found material to the granting of the injunction and the stay. The Federal Circuit then remanded the damages finding to the district court for reconsideration. Next, the Federal Circuit found that the district court did not abuse its discretion when it denied Microsoft's Rule 60(b)(6) motion. Microsoft had moved for relief based upon statements made by Amado during reexamination relating to claim scope. The district court had found that Microsoft was not entitled to relief because it did not demonstrate "extraordinary circumstances" suggesting it was faultless in the new disclaimers Amado made during reexamination. The Federal Circuit agreed, noting that Microsoft had not filed for reexamination until after judgment was rendered against it. Finally, Microsoft argued on appeal that damages awarded to Amado should be adjusted in light of Microsoft v. AT&T, which held that liability does not extend to software installed on a computer where copies of the software are made abroad. Microsoft argued that Amado's award should be limited to products manufactured or sold in the U.S. The Federal Circuit held that, although Microsoft should be entitled to limited damages based on AT&T, it could not determined whether the infringing products were prov

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